Canada's Life Insurance Industry

Life insurance is a common policy worldwide that is taken to guarantee a deceased person that the loved one left after his/her death will have reliable financial support. In Canada, this insurance policy is robust because it attracts more than 22 million policyholders as of the year 2015. There are a variety of channels that provide Life Insurance policy covers in Canada that include whole Life policies, term life policies, and universal life policies. These policies allow potential policyholders to determine the best channel to which they are willing and able to subscribe.

In the Canadian life insurance industry, some fundamental institutions and participants play significant roles in the sector and are continually spearheading changes in the field. Analysis of this sector reveals that it includes critical institutions and participants that perform a significant role in the market and that technology has shaped the market because it has increased professional experience, enhanced transparency in operation, and as a result made the future of the industry brighter.

Important Institutions/ Participants/ Securities in Life Insurance Market

There are important institutions that assist in the establishment and operations of Life Insurance activities in Canada. These institutions are mainly formed by the provincial or federal government or other not-for-profit organizations. Some of the most significant institutions that assist in the development and regulation of Life Insurance in Canada include the Insurance Institute of Canada (IIC), the Canadian Council of Insurance Regulators (CCIR), and the Canadian Life and Health Insurance Association (CLHIA). The IIC is responsible for the preparation of professionals to enter the market as a qualified workforce, the CCIR legally regulates the industry, while CLHIA is responsible for collective bargaining for Life Insurance activities in Canada.

Apart from institutions, there are two main groups of participants in Life Insurance activities in Canada that allow the industry to thrive. They include Insurance companies that provide Life Insurance as well as the insured persons/ policyholders, who are the actual customers of the Life Insurance covers. Ninety-seven local and foreign insurance companies offer Life Insurance in Canada, and these companies had a total revenue of $49.33 billion from Life Insurance underwriting for the financial year that ended in 2017. Specific insurers that are rated top in Canada’s Life Insurance market include RBC insurer, Manulife Financial, and Sun Life Financial. These firms control over 20 percent of total underwritings in the Life Insurance market in Canada, and thus, they are considered to be giants of Life Insurance in Canada. The above statistic from the life insurance provider shows that the industry is very competitive and profitable, which is why it has many participants.

Customers are also another key group of participants in this sector. A recent report on the country’s total life insurance policyholders shows that approximately 22 million Canadians have taken a life insurance policy. Most Canadian have adequate information about the benefits of life insurance, and thus, even young people are actively involved in this sector, unlike other countries where only seniors take most life insurance policies. In total, all customers have around 4.3 trillion dollars in life insurance coverage. This massive number demonstrates the importance of this sector to the Canadian people and the investors as well.

Lastly, as concerns securities, Life Insurance companies in Canada use various securities, such as regular premiums received from policyholders and hedging of the funds. The hedging is done to avoid the risk of default on compensation when massive compensation is required. This process takes place in the Ottawa securities market and includes diversification of investment portfolios. These securities allow insurers to make payments of claims as and when they are made by beneficiaries or the policyholders of Life Insurance contracts.

Roles That Important Institutions/Participants/ Securities Play in Life Insurance Industry

The important institutions named in the section above have several functions that they perform in the life Insurance industry in Canada. For instance, CCIR has the role to ensure that it scrutinizes investors who are seeking to establish a Life Insurance company. Vetting of the investors allows CCIR to determine their dependability in the provision of Life Insurance services to beneficiaries and policyholders in Canada. Once CCIR defines that a corporation has achieved all requirements for the establishment of a Life Insurance firm, it provides Licenses to such firms. CCIR can resort to the nullification of certificates of Life Insurance companies if such firms are involved in any form of malpractice in Canada.

The CCIR, on the other hand, is a learning institution, which produced a qualified workforce for the insurance industry in Canada. The institution invests in research to keep improving the industry as per legal requirements and best global professional practices. Lastly, CLHIA has the mandate to countercheck the fundamentals of Life Insurance companies and recommend the most suitable insurer to customers seeking medical services in Canada. This institution also supports marketing initiatives for the purchase of Life insurance covers by the Canadian public by elaborating its benefits to the potential and actual customers.

Insurers as participants also play significant roles in the industry. Policy providers, such as RBC insurers and Manulife insurers, perform various tasks, such as accepting premiums and evaluating the risks that a policyholder may undergo. Such evaluations allow the insurer to determine the needs and changes in premiums that a policyholder should remit to the companies. These participants also receive claims from policyholders for remittance of their dues in case of death or expiry of the term of a life Insurance policy contract. If the allegations are valid they make actual payments to the claimants.

Customers as participants also have several roles. First, they ensure that they provide accurate information to the insurer to enable the latter to determine the best premiums that the former should remit to the insurance companies for effective coverage. Second, they have a duty of submitting all the agreed premiums promptly to avoid any conflicts with the insurance provider. Moreover, they play an important role in investing their money in this industry because without such investment, the life insurance sector would not exist. The part played by the customers can, therefore, not be undermined because it is the most crucial.

Lastly, securities perform a duty of safeguarding both the insurer and the insured from losses when a risk occurs. When a company hedges a customer’s policy, it ensures that in the event of widespread losses which result in massive compensation it will manage to pay its share of financial obligations. The securities, therefore, are crucial for the payment of claims presented to the Insurance companies promptly. Without these securities, the industry might be unmanageable, and most companies would run out of business, while customers would encounter enormous losses from defaulted compensations.

Importance of Institutions/ Participants and Securities in the Life Insurance Market Quantitatively

The Life Insurance market is just like other markets of products and services. A market can be effective in the presence of rules enforced by a government and the existence of customers and sellers. Thus, controlling institutions, such as CCIR, assist in providing regulations for the operations of life Insurance firms in the Canadian market. On the other hand, sellers/ participants (Insurance companies) assist in the payment of claims to policyholders in case of peril. The insurers are critical since they pool risks and diversify such risks, thus reducing their impact on the insured persons. Buyers/ policyholders are crucial since they provide value for money in the life insurance market. Securities, too, cushion policyholders from losses that they incur due to death or expiry of term Life Insurance policy covers. Quantitatively, the interactions of institutions, insurance companies, and policyholders lead to the formation of the life insurance market that is adequately controlled and managed in Canada.

How Forces of Technological Change have shaped the Life Insurance Market's Evolution and Current Form

Forces of technological change have been instrumental in developing the life insurance industry in Canada in many ways. For instance, technology has been responsible for the change and modification of the nature of risks that individuals are exposed to. Thus, designing products and services to be covered under life insurance has been evaluated based on the changing nature of Life risks introduced due to technological changes. Secondly, technology has led to the diversification of the workforce through the use of online services in the Canadian life insurance industry. The provision of services through online means has been of the current trends in the insurance industry. Thus, the workforce having the ability to manage a company’s website has been advocated for as opposed to manual work conducted in office spaces and accomplished through the paperwork.

Moreover, the industry has been more effective in managing its internal affairs by ensuring that a proper workforce is hired and managed through online platforms. The Internet of Things (IoT) has been a great driver of information dissemination in Canada, thus assisting the industry in acquiring and maintaining customers through online platforms. Social networking sites, such as Twitter and Facebook, have been crucial in marketing the activities of life insurance companies in Canada. Sharing data on premiums remitted to different companies can also be achieved through the internet. Influencing customers’ behaviors towards purchasing life insurance covers have been possible through information sharing online. As a result, technology has affected insurers and allowed them to shift the insurance industry’s income positively in the future.

How Forces of Asymmetric Information have shaped the Life Insurance Market's Evolution and Current Form

Asymmetric information is prevalent on a high scale in the insurance industry primarily in the Life Insurance sector. In case one party has superior knowledge to another involved in a similar transaction then asymmetric information exists. Most insurance companies use publicly available information to make contracts with policyholders. Any private pieces of information should be provided to the insurance company upon acceptance of the terms of the insurance company by a policyholder. However, some private pieces of information are usually concealed by insured persons. Adverse selection has been eminent in Life Insurance coverage. This implies that people at higher risk of facing a peril are usually covered by insurance companies unaware.

Despite the efforts that insurance companies have been putting in place to ensure that they acquire critical information about a customer before signing contracts, there has been a scenario of adverse selection in Canada. This implies that most claims have been maturing as expected by the policyholders against the profitability needs of the insurance companies. The availability of information online, however, is changing the platform now. It is enabling insurers to deter insurer adverse selection scenarios by the use of the internet and other technological systems. Nonetheless, privatizing information about individuals has been the biggest loophole the insurers in Canada and has been leading to adverse selection cases. This process has led to massive claims being recognized as accurate accounts of perils despite the existence of moral hazards in the occurrence of the risk.

Life Insurance Market’s Evolution and Forces of Regulation

Forces of regulations have shaped the Life Insurance market positively for both firms and policyholders. Enhancement of contracts signed between insurers and policyholders has been possible through strict government regulations. CCIR has been at the forefront of managing contract decisions made between the insurer and insured persons. Any party that breaches the doctrines of the contract can face predetermined stipulations in the contract agreement signed between the two parties. Therefore, the existence of regulations has been a motivating factor in developing the confidence of policyholders in paying premiums. The policyholders are sure that the government protects them against any form of malpractice that insurance companies might engage in to deny valid claims.

Charging effective premium prices has been possible through the checks of the records maintained by Life Insurance companies by the CCIR. Any firm that offers excessive and unjustifiable premium rates can be questioned and fined for any hostile actions against the market trends. Even though there is no direct government control over insurance prices, the CCIR only checks the records of insurers to determine if they are market competitive and justifiable for all policyholders. Insured persons belonging to a similar category of peril must be grouped and charged similar premiums. Any attempts to deviate from this notion leads to malpractice that can attract fines and revocation of the certificate of operations of a Life Insurance company in Canada. Clients and insurers are at peace to trade freely due to the existence of positive and inclusive regulations imposed and controlled by the government through the CCIR.

Life Insurance Market’s Future Evolution

Based on the current economic status and expert predictions, the Life Insurance sector in Canada is expected to continue growing and being profitable. Great-west Life Assurance company surveyed on July 5th, 2015, and found that 46 percent of the respondents in Canada were not planning to retire. This assertion offers a broader opportunity for the development of the Life Insurance industry in Canada since employees have a constant stream of cash outlay that allows the insurers to make appropriate premium incomes from them. Moreover, there are lower interest rates charged by Life Insurance companies in Canada. This leaves leeway for better incomes from diversification of a pool of premiums meant for life insurance services. Policyholders are better placed to ensure that they access their claims from positive returns of their pool of funds in case their claims mature or if they die. Nevertheless, the life insurance segment is sufficiently capitalized in Canada with RBC and Manulife being among the top 15 firms concerning stock capitalization worldwide. Increased confidence occurs among policyholders due to such a high trend in market capitalization of Life Insurance firms in Canada

Conclusion

In conclusion, the above analysis has reviewed the life insurance sector in Canada where it was revealed that the industry has critical institutions and participants that play a significant role in the market. It has also shown that technology has shaped the market because it has increased professional experience, enhanced transparency in operation, and as a result, made the future of the industry brighter. Controlling institutions, such as CCIR, IIC, and CLHIA, are essential in the development and regulation of insurance policies in Canada. Major participants are insurers, such as RBC and Manulife, and customers who subscribe to life policies. Securities, such as hedging and premiums, are used by insurers to cushion policyholders in case they face peril and make claims. Moreover, technology has been critical in ensuring that information is shared online about insurance services, thus allowing policyholders to have a better interest in continuing to remit their premiums. However, asymmetric information has been central in adverse selection in entering into a contract with policyholders at higher risks in Canada. Nonetheless, the future of life Insurance is bright since many Canadians seem more interested in taking life Insurance policies as evidenced by their view against retirement.